Darling backtracks on CGT

Updated The chancellor Alistair Darling is today expected to make a U-turn over plans to bring a single rate of capital gains tax (CGT) into play, following pressure from small business (SMB) lobby groups that deeply opposed the reform.

Darling looks set to announce in the Commons later today that the government will introduce a lower tax rate for entrepreneurs.

It's not known what the new lower rate will be, though a number of reports suggest that it will be near to the figure the Federation of Small Businesses had been pushing for. The group campaigned for a special rate of nine per cent on the first £750,000 worth of gains over a lifetime.

The tax overhaul, which was announced in the chancellor's pre-budget report in October last year, called for taper relief - that reduces CGT on a sliding scale from 40 per cent to 10 per cent - to be scrapped in favour of a flat rate set at 18 per cent, to be brought in from April 2008. The change was met with fury by many business groups.

Darling isn't expected to make any other concessions to the reform today, with taper relief still looking likely to be axed under the reform. But many will undoubtedly see the government's change of heart as a humiliating climbdown.

He had hinted at the Confederation of British Industry (CBI) conference in November last year that the Treasury could reconsider some elements of the reform – Darling conceded at the time that he was "open to suggestions".

But he also defended the policy, saying that the UK would still have one of the lowest rates of CGT in the world, and that the reform would simplify the tax system. ®

Update

Darling told the Commons earlier today that CGT rate on profits below £1m made by anyone flogging all or part of a business would be slashed to 10 per cent.

Dubbed Entrepreneurs' Relief, the chancellor said that an estimated 800,000 small biz owners and investors would be eligible for the reduction on disposal of their business assets.

He also put a price tag of around £200m per year to implement the changes.

The Chartered Institute of Taxation (CIOT) welcomed the government's relaxation of the reform but also highlighted the need for Darling to work more closely with the business world.

CIOT president Rob Ellerby said: "If there is one lesson to come out of the CGT saga, it is the importance of consultation with those affected. In taxation, the only time that change should come before consultation is in the dictionary."